Services

HG Alert: Fair Work Australia Increases National Minimum Wages: Practical detail and implications - 8 Jun 2010

Fair Work Australia Increases National Minimum Wages: Practical detail and implications

On 3 June 2010, Fair Work Australia’s Minimum Wage Panel released its decision on the first Annual Wage Review conducted under the Fair Work industrial relations framework. This decision is the first adjustment to wages in Australia’s national industrial relations system since October 2008.

The panel’s decision increases all modern award pay rates by a flat $26 per week, and the full time national minimum wage by almost five percent. It also increases the default casual loading for award and agreement free employees from 20 percent to 21 percent, with the result that the minimum hourly rate for this group increases by almost six percent.

Subject to applicable transitional arrangements, which are discussed below, the changes take effect in the first full pay period that starts on or after 1 July 2010. Employers need to now determine how, if at all, their industrial arrangements are affected by the decision, so they can make sure that they comply with the minimum safety net requirements after 1 July. Failure to do so may result in wage underpayments and exposure to substantial civil penalties.

The main details of the minimum wage increase

The main details extracted from the decision with immediate application (subject to transitional arrangements) from 1 July are as follows:

  • All modern award rates of pay increase by a flat $26 per week, with flow-through proportionate increases to hourly minimum wages and annual salaries.
  • The national minimum wage for adults working full time (38 hours per week) increases from $543.78 to $569.90 - in other words, by $26.12. This equates to a minimum annual full time wage of $29,634.80.
  • The minimum hourly rate for full time national system employees increases from $14.31 to $15 per hour.
  • The minimum hourly rate for casual employees to whom a modern award applies continues to be subject to the modern award standard casual 25 percent loading.
  • The default casual loading for award/agreement free casually employed employees increases from 20 percent to 21 percent.
  • The minimum hourly rate for award/agreement free casual employees increases from $17.17 to $18.15 per hour.
  • Because of the differential in the casual loading between modern awards and award/agreement free arrangements, the lowest hourly casual rate for an employee to whom a modern award applies will be $18.75 (subject to award classification - in most cases the award based casual rate will be higher).
  • As a result of the minimum wage adjustment, piece work modern award rates will rise automatically by application of the various piece work formulas contained in the modern awards that prescribe them.
  • The decision does not apply to employees under the age of 21 or those working under a formal State based training arrangement and whose employment is award/agreement free.
  • The decision does apply to employers and to any of their employees whose terms and conditions of employment are not regulated by a modern award, but to whom an Australian Pay and Classification Scale was applicable as at 31 December 2009. The pay rates in these ‘transitional’ pay scales - now referred to as ‘transitional APCSs’ - are adjusted by the decision the same way that modern awards are adjusted.
  • The decision also applies to employers who are new to the federal system from 1 January 2010 and to any of their employees whose terms and conditions of employment continue to be regulated by an ‘old’ State enterprise award - this is, an award applying specifically to the employer’s business or enterprise (‘Division 2B enterprise awards').
    The employers in this group will comprise those carrying on business other than through a corporate entity (such as sole traders and partnerships) or corporate employers not substantially engaged in trading activities (such as some religious institutions, other charities, clubs and service groups).
  • The decision does not apply to employers who are new to the federal system from 1 January 2010 and to any of their employees whose terms and conditions of employment continue to be regulated by an ‘old’ State common rule award (or ‘Division 2B State Award’).
    Again, employers in this group will comprise those carrying on business other than through a corporate entity substantially engaged in trading activities.
    Minimum wages payable in this group were increased by State wage case decisions last year.
    For example, the minimum wage in both NSW and Queensland was fixed in July and September 2009 respectively at $568.20.
  • The decision does apply to employers who are not trading corporations and to any of their employees whose terms and conditions of employment were, before 26 March 2006, fixed by a federal award that has not since been replaced by a modern award or any other industrial instrument. Such awards have ongoing operation in the Fair Work system as ‘State reference transitional awards’. The decision varies pay rates in them in the same way it varies modern awards.
  • Two special national minimum wages have been fixed for employees with a disability whose employment is award/agreement free. For those whose productivity is not affected by their disability, the national minimum wage will be the same applicable to adults generally. Others will be subject to an assessment under the Supported Wage System (the detail of which is included in a schedule to most modern awards and can also be found atwww.jobaccess.gov.au).

Applying the changes (and transitional arrangements)

The impact of the changes in each national system workplace will depend on three things:

  1. The industrial arrangements currently in place at the workplace – for example, whether these are entirely based on the current minimum safety net or any one of the various kinds of transitional instruments, including pre-existing collective agreements, Australian Workplace Agreements (AWAs) or Interim Transitional Employment Agreements (ITEAs).
  2. Current wage rates prescribed in or being paid under those arrangements.
  3. The transitional arrangements prescribed by modern awards or by the Fair Work (Transitional Provisions and Consequential Amendments) Act.

Working arrangements not regulated by any award or other transitional instrument are, from 1 July, subject to the national minimum wage and, for casual employees, the new default 21 percent casual loading. Existing higher rates of pay will generally be capable of absorbing the increase to the national minimum wage so that in most of these situations, no pay adjustment will be necessary. It is possible, however, that in some of these cases the terms of applicable common law contracts might require wage adjustments.

Similarly, employers of employees to whom a modern award or adjusted transitional instrument applies who are paying above modern award rates will, in most cases, be able to absorb the higher award/instrument rates into current rates of pay. No pay adjustments will be required in these situations unless as the result of common law contract obligations between the parties.

Employers of employees to whom a modern award applied from 1 January 2010 will not immediately have to pay at the full modern award rate if, as at 31 December 2009, the then applicable pay rate, under a range of instruments, was lower. Such instruments include, for example, ‘old’ federal awards, State based NAPSAs and State based collective agreements.

Employers in this situation have the benefit of the transitional arrangements prescribed by modern awards for the phasing in of higher award wages than those that previously applied, at the rate of 20 percent of any difference per year, over the four years between 1 July 2010 and 1 July 2014. More detail about the application of these transitional arrangements is available at the Fair Work Online website.

As mentioned above, parties subject to Division 2B State Awards are not affected by the decision. These instruments terminate on 31 December 2010. Employers and employees covered by them will become subject to the federal safety net, including applicable modern awards, from 1 January 2011.

Employers bound by an enterprise agreement made since 1 January 2010 are obliged, for employees to whom the agreement applies, at a minimum to keep pace with modern award base rates of pay or the national minimum wage, although the precise impact of the decision will depend on the terms of the agreement. The basic requirement of the legislation is that an enterprise agreement cannot undercut the applicable modern award base rate of pay or, if there is no modern award capable of covering the employees in question, then the national minimum wage. Provisions in enterprise agreements dealing with such things as loadings, monetary allowances and penalty rates can continue to be applied ‘as is’ until the agreement is terminated.

The same considerations apply to any kind of statutory agreement made before 1 January 2010, including collective agreements, AWAs and ITEAs. Again, the precise impact of the decision will depend on the terms of the agreement, but the basic requirement of the transitional legislation is that a pre-existing agreement cannot undercut the applicable modern award base rate of pay or, if there is no modern award capable of covering the employees in question, then the national minimum wage. Existing provisions in these agreements dealing with loadings, monetary allowances and penalty rates, assuming they were valid in the first place, can also continue to be applied ‘as is’ until the agreement is terminated (even after its nominal expiry date has passed).

Employers relying upon the terms of collective agreements and AWAs made at the height of the Work Choices reforms, in the period from 26 March 2006 until 4 May 2007, would be well advised to check that, going forward, their industrial arrangements are legally compliant. Agreements in this period took effect upon lodgement without front-end review by the then lodgment authority, and there is a risk that some provisions in these agreements were never effective.

For the future

The panel decision foreshadowed:

  • that next year’s wage adjustment was more likely to be determined by a percentage adjustment, rather than a flat rate dollar increase across the board;
  • an intention to phase up the default casual loading for award/agreement free employees to the modern award 25 percent standard incrementally, in tandem with the transitional arrangements provided for in modern awards. This will see the default casual loading for award/agreement free employees increase from 21 percent this year and then, by annual increments of one percent, to 25 percent on 1 July 2014;
  • that Fair Work Australia is reviewing whether further transitional arrangements are appropriate to assist parties currently covered by Division 2B State Awards when those instruments terminate on 31 December 2010;
  • that further work (including stakeholder participation) will be undertaken by Fair Work Australia between now and the next annual wage review, with a view to setting special minimum wages for juniors and trainees whose employment is award/agreement free. As indicated above, wages for this group are not affected by the 2010 decision;
  • that Fair Work Australia is “making arrangements to provide information about the full range of transitional instruments”. This followed a submission made to the panel by the Australian Chamber of Commerce and Industry, to the effect that there was some difficulty for employers with the transitional arrangements applicable to the range of pre-reform industrial instruments - ‘transitional instruments’ operating in the Fair Work system.
  • the Supported Wage System minimum weekly payment to employees with a disability (currently $71) will be adjusted in line with changes to the disability support pension on 1 July. A separate determination will follow when the Disability Support Pension changes are announced by the Commonwealth.

For more information about applying the annual wage review decision in your workplace, please contact our Industrial and Employment Law team.